As a business owner, you most likely have spent years building a successful company. However, at some point in time, you may contemplate retirement or heading in a different business direction. Have you given much thought to what you will do with your business? Will you sell it? Do you have a buyer? Have you considered selling it to your employees? Regardless of your motivation to pursue a particular course of action, there are many important considerations to ensuring a profitable and successful sale of your business.
Create a Market for Your Business
Just as banks more readily lend when business prospects are good, buyers are more receptive to companies coming off prosperous years. By planning to sell when performance is good, you can greatly influence interest and the value generated in the marketplace and, ultimately, you can gain tremendous leverage in negotiating the sale price.
Too often, private businesses are sold through business contacts or as a result of direct approaches made by potential buyers. While an unsolicited proposal is flattering, such chance opportunities may rarely yield the highest value or produce the best buyer for a company. Instead, you should strive to create the appropriate market to attract a number of potential buyers. This will draw the highest price and the right buyer from a group bidding on the business. Only by meeting with a host of potential buyers can you weigh the relative strengths and weaknesses of each proposed offer.
Seek Professional Assistance
Most individuals are not qualified to represent themselves in court, and the same goes for a business owner selling his or her business. Instead, it would be prudent to engage a professional intermediary to guide you over the various legal, tax, and accounting hurdles that will arise. An intermediary can help define realistic goals for you, sort through potential buyers, negotiate with the interested parties, and help you select the most advantageous offer.
Carefully review the net after-tax effect of any proposed transaction. The tax consequences of an asset sale are quite different from those resulting from the sale of stock.
Another option that is available to owners looking to sell their business is an ESOP (employee stock ownership plan). ESOPs are defined contribution plans and are subject to the same guidelines imposed on 401(k) and profit-sharing plans. Although ESOPs give all employees a vested interest in the profitability of the company, they can also function as a private marketplace, enabling a retiring business owner (or employee) to recognize a retirement benefit by selling his or her shares back to the ESOP. In some circumstances, the owner may also be able to defer gain on the sale of stock to the ESOP.
Personal Planning at the Forefront
Irrespective of what you decide to do, your initial efforts should be to closely examine your personal planning issues. Like most business owners, you have probably had little time to devote to your personal financial and estate planning needs. In addition, your current compensation package may contain a variety of benefits, some of which may not be portable. And, some benefits may place restrictions on present enjoyment, while other benefits may become available only upon retirement or death.
Because much of your assets may be tied up in the stock of your company, proper tax, estate, and investment planning should be reviewed prior to the actual sale of your business in order to help minimize any potential estate and gift tax liabilities, and to help ensure maximum future income for both you and your family.